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Surgut Momentum Fading to VTB on Fields: Russia Overnight

OAO Surgutneftegas won’t repeat the surge that made it the biggest gainer among Russian U.S.-traded stocks in 2012 as the oil company’s fields are depleted and it switches to international accounting standards, according to VTB Capital and Rye Man & Gor Securities.

Preferred American depositary receipts of Surgut rose 3.6 percent yesterday to cap a 30 percent advance in New York last year, tracking a 21 percent jump in the producer’s Moscow preferred stock. The Bloomberg Russia-US Equity Index of the most-traded Russian shares in the U.S. added 9.7 percent in 2012, beating the Moscow-based Micex Index’s 5.4 percent jump.

Surgut won’t extend its best year since 2009 as the company, which currently posts earnings to Russian accounting standards, will probably move to International Financial Reporting Standards this year, tempering speculation about the switch that has been the stock’s “greatest growth factor,” said Mikhail Loshinin, an analyst at RMG. The Siberian company, Russia’s fourth-largest oil producer, said in October that net income in the first nine months of 2012 fell 40 percent.

“Surgut is not going to be a significant outperformer next year,” Dmitry Loukashov, an analyst at VTB Capital, a unit of Russia’s second-largest bank, who rates the stock buy, said by phone from Moscow Dec. 28. “Everyone in the market knows they’re going to publish to IFRS standards.”

Fields ‘Exhausted’

The Russia-US gauge of 14 stocks rose 1.5 percent to 99.31 in New York yesterday. The Market Vectors Russia ETF, the largest dedicated Russian exchange-traded fund, increased 1.7 percent to $29.90, pushing its advance in 2012 to 12 percent. RTS Index futures due in March added 0.4 percent to 153,590.

Surgut’s preferred ADRs climbed to $6.64 in New York yesterday, while its preferred shares listed on the Micex dropped 1.1 percent to 19.92 rubles on Dec. 28, the equivalent of 65 cents. Russia’s New Year holiday extends until Jan. 9.

The crude producer’s fields in Western Siberia are “very exhausted” and other projects in Siberia aren’t very developed, meaning they won’t be able to compensate for declines in revenue, RMG’s Loshinin, who rates Surgut buy, said by phone Dec. 28.

The company won rights to the Shpilman field in the Khanty-Mansiisk region of Siberia last month, after losing out to TNK-BP on the Lodochnoye oil field, in Siberia’s Krasnoyarsk region, earlier in December. Energy companies are investing in Siberia to revive aging fields and open up new areas for development as President Vladimir Putin offers tax incentives.

International Standard

Surgut said in April that it would publish 2012 financial results to IFRS, following a law that requires Russian companies to switch to the international standard.

An e-mail requesting information on the status of the move sent to Surgut’s investor-relations office yesterday wasn’t returned. Russia’s three biggest oil producers -- OAO Rosneft, OAO Lukoil and TNK-BP -- currently report to U.S. Generally Accepted Accounting Principles, or GAAP, and have either already shifted to IFRS or pledged to do so.

Crude oil for February delivery jumped 1.1 percent to $91.82 a barrel on the New York Mercantile Exchange yesterday. Prices fell 7.1 percent last year. Brent oil for February settlement rose 0.4 percent to $111.11 on the London-based ICE Futures Europe, capping a 3.5 percent advance for 2012. Urals crude, Russia’s chief export oil blend, rose 0.4 percent to $109.72 a barrel, pushing prices up 3.8 percent in 2012, the fourth annual climb.

OAO Lukoil, Russia’s second-biggest crude producer, rose 1.4 percent to $67.50 in New York, the highest close since July 2011. The ADRs gained 27 percent last year, while the Moscow-based company’s Moscow shares added 18 percent, the best performance in three years.

RusHydro’s Decline

OAO RusHydro, the state-run hydropower producer, added 1.3 percent to $2.35 in New York yesterday, trimming a 22 percent decline in 2012 that was the worst performance on the Russia-U.S. index. RusHydro’s Moscow stock sank 24 percent in 2012.

ADRs of OAO Mechel, Russia’s biggest producer of steelmaking coal, added 2.4 percent to $6.93 in New York, paring an 18 percent decline for the year. Mechel shares in Moscow slid 25 percent in 2012.

VimpelCom Ltd. rose 0.7 percent to $10.49 yesterday, extending last year’s 11 percent jump. The Algerian government’s purchase of a stake in Djezzy, a local unit of VimpelCom’s Orascom Telecom Algerie, is nearing completion and is pending selection of seven board members, Al-Fadjr independent newspaper reported, citing unidentified Finance Ministry officials.

Ruble futures showed the currency little changed at 30.783 per dollar in U.S. trading hours yesterday. The ruble climbed 5.7 percent against the dollar last year.

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